Archive - Jun 2010

The consumer products giant’s $238 billion market capitalization now tops that of Microsoft. To see the company bring out the IPad and sell 2 million units during appalling economic conditions is nothing less than amazing. Forecasts for the global smart phone market are ratcheting up by the day. Sales of several of its products are going hyperbolic at the same time. Steve is sitting on a monster cash flow generator. Earnings could skyrocket from the current $12/share to $30 over the next two years. So who is the world’s worst Apple stock trader? (AAPL), (MSFT).

I think the fundamentals are pointing to an absolute disaster in the markets, but I think that will only really happen when the ISM starts rolling over properly. I think the top is in but I don't think that realization has set in with a lot of the real money accounts. A slow down in GDP and private sector is what will tip the sovereign debt problem over the edge. - Nic Lenoir

Gold gained overnight, rising to new records off heavy demand in Asian & European trading. August gold rose as high as $1254 before retracing to more modest levels. Precious metals are finally becoming their own asset class at the banking level . Investment firms loathe to state it outright because they haven't completed their financialization efforts yet. There is just too much fragmentation on the demand side, and therefore for them gold as a product is not as profitable to pitch yet. I guess it's tough when some of the fish aren't in the barrel. But when Goldman Sachs worries that the US dollar is weaker than it appears, is bearish on the Euro, and doesn't come out preaching the virtues of the yen what is left to tell people to buy?

Europe's banks are not buying the propaganda about liquidity moderation on the continent. In fact quite the contrary: yesterday's total usage of the ECB's overnight deposit facility hit a fresh all time record of €361.7 billion. This is an €11 billion increase from the night before and €55 billion from a week earlier. This means that all the excess liquidity in Europe is getting tied into the safety of the central bank, and the market continues to experience a liquidity glut. It also explains why both 3 and 6 month Euribors crept higher today, to 0.713% and 0.999%, just wider compared to yesterday's fixings. Ignore all the populist rhetoric: the liquidity in Europe is getting worse with each passing day, as the banks' own actions confirm.

This week's shadow QE at the ECB amounts to €40.5 billion: first the ECB buys up sovereign bonds in the secondary market, then it pretends to absorb the provided liquidity in a variable-rate tender operation, with the resulting fixed-term deposits applicable as ECB collateral, in essence doing nothing to moderate liquidity gluts. This follows prior such operations of €35 billion, €26.5 billion, and €16.5 billion. The announced tender results indicate an ongoing decline in the appetite for liquidity extraction: only 64 bidders submitted bids for €75.6 billion, a 1.86x Bid To Cover, with an allotted rate of 0.31%.This compares to the prior auction which closed at 0.28%, and a 2.1x Bid To Cover, with 68 banks participating. Europe's banks are becoming increasingly reluctant to play even this charade of a liquidity withdrawal game.

So much for not buying at the top: earlier spot gold hit an all time high in dollars ($1,251.5/oz) and all other currencies. Any minute now it will go back to 0, the central bankers and skeptics say, just because the politicians really have it all under control and we all just have to trust them. From Reuters: "Gold hit a record dollar high above $1,250 an ounce and new peaks in other currencies on Tuesday as concern over Europe's economic outlook lifted risk aversion, reversing early gains for the euro and stock markets. Concern grew over prospects for a European economic recovery after ratings agency Fitch warned the UK faced a "formidable" challenge in its plan to cut government borrowing."

Simply copying the US style of Central Bank Crisis mitigation is a bad idea, particularly since I believe the US has not mitigated the problem at all, but simply kicked a soda can down the road until it gained the unstoppable momentum of a dumpster. Now, the ECB is actually trying to kick that dumpster, and appears to be stubbing its toe!

"Ben, keep up the rah rah if you have to, but I think you need to accept that folks are beginning to see the post-Lehman global recovery for what it was - a 1 yr wonder driven by the most extraordinary policy response ever seen in history at the global economy level. And folks are now beginning to accept that a slow down is on its way, with policy makers pretty much all-in. All that's now left, as I have said before, is for the Fed to shift to a USD5trn or so new QE programme, likely in co-ordination with a bunch of other central banks, which in total may give us USD10trn or more of new QE. But this isn't happening until much much later this year or, more likely, next year."- Bob Janjuah

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/06/10

Contribution from BoomBustBlog reader: EVI is a well run company with 60%+ of shares owned by management that has an absurd amount of cash on the balance sheet, no debt, and trades at a ridiculous valuation with a few likely catalysts.

Falling stock markets in May sent pension plan assets lower, resulting in the worst funded status for the typical U.S. corporate pension plan since October 2009, according to monthly statistics published by BNY Mellon Asset Management. The funded status in May declined 4.3 percentage points to 82.0 percent.

Whether you hate enviros or are an environmentalist ... peak oil is the real issue.

As someone once said, the only man who can tell a room full of people they are doomed and get a standing ovation, Marc Faber, gives a terrific hour long presentation to the Mises Circle in Manhattan on May 22, discussing the economy, interest rates, markets, why having massive output gaps (see previous post for Bernanke's most recent dose of lunacy on the matter) and hyperinflation can easily coexist, why the Fed will never again implement tight monetary policy, why Greenspan is a senile self-contradictor, why Paul Krugman is a broken and scratched record, and the fact that pretty much nothing matters and we are all going to hell. Little new here for long-term economic skeptics, but a must watch for all neophytes who are still grasping with some of the more confounding concepts of our dead-end Keynesian catastrophe and not only why the world can not get out of the current calamity absent a global debt repudiation, but why gold is the asset to own, even though one must not be dogmatic and shift from asset class to asset class in times of tremendous currency devaluation (i.e., such as right now). 2010's must watch Marc Faber presentation.

Traditionally the primary metric watched by Fed Chairmen when determining changes to monetary policy, especially on the tightening side, has been the observation of a contraction in the "excess slack" component in the economy, defined rather loosely, but primarily in terms of excess unemployment over the dogmatic steady-state unemployment rate in the 5-7% range. Today, in a Q&A at the Woodrow Wilson International Scholars dinner, Ben Bernanke joined Hoenig and other Fed members in stating that the Fed will no longer await a "sizable" drop in the jobless rate before raising interest rates. This is good, because as the San Fran Fed discussed in an analysis from exactly a year ago, the unemployment rate is not going down any time soon. Does this also mean that the Fed is no longer wed to the worst, and most procyclical indicator imaginable, i.e., economic slack? The answer of course, is no. And the only reason Bernanke is pretending to care about tackling the issue of inflation in advance, is due to the sudden and dramatic focus the ECB's policies have gotten in Europe, coupled with the dramatic politicization of Trichet's bank. It is ironic, that in the US the Fed is using the "political" card when demanding free reign in its complete opacity to do precisely the things that in Europe bring about screams of central bank politicization. But then again, they can't print a reserve currency, can they. Thus, the use of a double, and a 180 degree opposite at that, standard is not only welcome but expected.

As Hamas quietly imports its culture and policies with much-needed goods into Gaza, international tensions surrounding Israel are exploding and the relevant parties are all taking stances on the eve of the flotilla raid. The USA finds itself in a bind to position itself properly, with time being the most important factor of all.